As countries race to meet the COP26 climate change agreement, governments globally are focusing on the renewable sector and setting ambitious targets to reduce the economy’s emission intensity. Thus, creating huge opportunities for wealth creation in the renewable sector.
In this article, we will analyze Suzlon share price, a leading wind energy company in India, and assess its long-term growth potential in light of emerging global conditions.
Overview of India’s Renewable Energy Sector
The Indian government has set an ambitious goal of constructing 500 GW of non-fossil fuel energy capacity, with a share of renewable energy in total installed power capacity at 50% by 2030. And, the share of wind energy is expected to be 140 GW.
India’s total installed wind energy capacity is 42GW, as of 31st December 2022. As a result, India plans to build 100 GW of wind energy capacity over the next eight years. Let’s see how Suzlon share price will benefit from the upcoming opportunities.
History of Suzlon Energy
Suzlon Energy was founded in 1995 by Tulsi Tanti, a mechanical engineer by education who later became famous as a wind man of India.
Tulsi Tanti began his career in his family’s textile business in Surat, Gujarat, but the company struggled due to high operating costs and frequent power outages. So, to mitigate the impact of expensive power and power outages, Mr. Tanti began looking into alternative sources of stable power and purchased two wind turbines to generate his own electricity. His success caught the attention of others in the business community in his solution, prompting Mr. Tanti to leave the family business and start Suzlon.
Over the years, through multiple technological collaborations and manufacturing excellence, Suzlon has established itself as a leading wind energy player.
Suzlon has a presence in 17 countries on six continents with over 5,800 workforces and a total installed wind energy capacity of 19.7 GW as of 31st December 2022. Its cumulative market share in India stands at 33%.
The company has a market cap of ₹9,805 crores (as of 25th Feb 2023), and due to the company’s poor financial health, the Suzlon share price has fallen below ₹10 and has become a penny stock. However, Suzlon shows signs of a financial turnaround on the back of strong revenue growth and order book.
Suzlon Business Overview
Suzlon has all its manufacturing facilities across India, producing every component in-house for installing windmills, from wind turbine generators and blades to towers. It follows a vertically integrated low-cost supply chain to maintain its leadership position in the market.
It produces wind turbine generators ranging from 0.6MW to 3+MW suitable across diverse climatic conditions, including low wind sites found commonly in India. Suzlon provides end-to-end solutions to its customers, from manufacturing and supply chain management, and installations, to lifetime asset management & support.
The company divided its operations into four business segments- Sale of wind turbine generators, Foundry & Forging, Operation and Management Services (OMS), and Others. The sale of wind turbine generators generates most of the company’s revenue among the four business segments.
In FY22, the company reported a 97.89% jump in revenue at ₹6519.95 crores compared to FY21 at ₹3,294.65 crores.
Suzlon Management Profile
Mr. Tulsi Tanti, Chairman, and Managing Director led Suzlon. However, due to his untimely death on October 1st, 2022, Vinod Tanti has taken over as Chairman and Managing Director.
Vinod Tanti is a founding member of Suzlon and has over 37 years of experience and expertise in wind resource evaluation, product design, prototyping, project execution & lifecycle management through OMS. He has done BE in Civil.
Girish Tanti is Suzlon’s Vice Chairman and a founding member. He has 27 years of experience and was instrumental in establishing global business operations and leading various functions such as IT, communications, HR, and CSR. He has a BE in Electronics and Communication and an MBA from the United Kingdom.
Ashwani Kumar is the Group CEO and joined Suzlon in October 2020. He has over three decades of experience across leading Indian infrastructure and power companies.
Himanshu Mody is the Group CFO. He joined the company in August 2021 from Essel Group, where he worked for over 20 years.
In FY22, the company reported ₹6519.95 crores in revenue, 97.89% higher compared to FY21 at ₹3,294.65 crores, driven by higher sales in wind turbine generators. In 9M FY23, the company reported net revenue of ₹4,257 crores, up by 4.3% compared to 9M FY22 at ₹4,078 crores. The contribution margin is 33.8%. The contribution margin is also called the gross margin.
Segment-wise revenue breakup (in ₹ crores)
|9M FY23||9M FY22||FY22||FY21|
|Wind Turbine Generator||2,663.45||2,493.59||4,376.40||1,193.38|
|Foundry & Forging||332.29||323.33||476.70||334.31|
|Operations and Maintenance Service||1,386.74||1,337.88||1,825.03||1,884.52|
In FY22, EBITDA came in at ₹889 crores, which rose by 54% over FY21 at 534.28 crores. The EBITDA margin was 12.7% in FY22.
While in 9M FY23, EBITDA came in at ₹605 crores, and the EBITDA margin is at 14.2%. This is slightly down from ₹636 crores reported in 9M FY22.
In FY22, The Company reported a loss of ₹166 crores against a profit of ₹100.34 crores. During the 9M FY23, the company reported a net profit of ₹104 crores, against a loss of ₹93 crores.
Suzlon Key Ratios
Current ratio: The Company’s current ratio was 1.20 times in FY22, improved marginally from 1.27 times in FY21.
Interest coverage ratio: Suzlon has improved its interest coverage ratio to 0.90 in FY22 from 0.29 in FY21 due to strong revenue growth and improved liquidity. And, in 9M FY23, the interest coverage ratio further improved to 1.9 times, signaling a better financial position for the company. The finance cost also reduced to ₹321 crores during the period 9M FY23 from ₹540 crores incurred during 9M FY22.
Debt-to-equity ratio: In FY22, the debt-to-equity ratio slightly improved to 1.79 times from 2.02 times in FY21. At the end of FY22, The Company’s net debt stood at ₹5,796 crores, which dropped to ₹2,035 crores in FY21.
Operating profit margin: Suzlon’s operating profit margin during FY22 stood at 13.64%, down from 16.22% in FY21.
Suzlon Share Price Target Analysis
Since its stock market listing, Suzlon share price has failed to create wealth for its shareholders. Suzlon IPO was launched on 29th September 2005, with an issue size of ₹1,496.3 crores at ₹510 per share. Due to the poor financial health of the company and its high debt-to-equity ratio, Suzlon share price failed to attract investors in the stock market.
Additionally, the high pledge percentage of promotors’ holding – over 80% – is another factor for low investor confidence in Suzlon shares.
The stock underwent a split on the 10:2 ratio on 21st January 2008.
Suzlon share price in the last three years has given a CAGR return of 48%, rising from ₹2.20 to a high of ₹11.20. In the last 10 years, the company has not paid dividends to shareholders.
Suzlon Fundamental Analysis
The Suzlon share price has not performed as expected since its listing in the stock market and has witnessed a steady decline in value due to high debt levels and losses. However, the company has taken steps for financial turnaround and has become a strong player in India’s renewable energy sector. Some of the steps taken to support the falling Suzlon share price include the following-
In recent quarters, the company has taken numerous steps to deleverage its balance sheet to improve its market competitiveness. Improved interest coverage ratio and debt-to-equity are some positive indications.
Another significant step the company has taken is refinancing its debt. On May 24, 2022, Suzlon concluded a debt refinancing agreement replacing 16 lenders consortium led by State Bank of India with another two lenders consortium led by REC Limited.
REC’s better understanding of the company’s power sector and operational needs will likely aid Suzlon in its deleveraging process. Additionally, the company is looking to offload some of its non-core assets to give momentum to the turnaround process.
Suzlon successfully conducted a ₹1200 crore rights issue on October 20, 2022, of which ₹300 crores will go towards debt reduction, and the remaining sum will be used to meet the company’s operational needs.
Steady Order Flow
As per the release by the company, Suzlon has a wind firm order book of 782 MW as on 31st December 2022. And, further India invites bids for 8GW wind projects annually; Suzlon is likely to emerge as a key beneficiary from the development due to its unique capabilities.
Key risks that can impact Suzlon share price target growth are:
Debt repayment obligation: From ₹13,000 crores of debt in FY20, the company successfully reduced close to 80% of its debt at the end of H1 FY23, lowering finance costs and improving the interest-coverage ratio. According to the FY22 Annual Report, the refinanced debt with REC requires the company to repay a significant portion of the debt over the next twelve months from the date of disbursement, which it will accomplish through the sale of non-core assets and the right issue. Any delay in selling non-core assets could impact the debt repayment plan.
Availability of adequate working capital: The company operates with limited working capital, which limits its progressive growth. Furthermore, because the company earns the majority of its revenue from the sale of wind turbine generators, which is a capital-intensive business, the inability to maintain adequate working capital on a continuous basis can result in the risk of lost orders or execution delays.
Supply chain risk: In the face of emerging global situations, supply chain risk is a constant risk, adding to the cost and timely availability of components.
Business volume risk: Lower realization of wind tariffs is a big risk for the company and can adversely impact the company’s finances.
Suzlon Share Price Future Growth Potential
The government’s prime focus on ramping up the share of renewable energy in India’s energy mix and favorable policies is expected to benefit renewable energy companies. Suzlon’s net worth has turned positive after more than nine years, and a significant reduction in debt should favor the company’s fortunes.
Suppose the company reports a steady EBITDA level in the next few quarters, accompanied by strong order flow. In that case, Suzlon could become a financially strong player in the market among other players like Seimens Gamesa and Envision.
Disclaimer Note: The numbers mentioned in this article are only for information purposes. He/she should not consider this a buy/sell/hold recommendation from Research & Ranking. The company shall not be liable for any losses that occur.
How has Suzlon share price performed in the last 10 and 5 years?
Suzlon share price has failed to perform as per the investors’ expectations due to poor financial results. Suzlon share price has been trading below ₹10 for the last few years. As of 25th February 2023, Suzlon’s market cap is a little below ₹10,000 crores.
Does Suzlon share price have a future?
In the last few quarters, the company is working aggressively on a financial turnaround by reducing debt and execution delays. Suzlon has managed to reduce debt by close to 80% from the FY20 level, helping Suzlon share price to recover from its lower level.
When was Suzlon Energy established?
Suzlon Energy was founded in 1995 by Late Mr Tulsi Tanti.
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